Trade liberalization and the environment in Costa Rica

Abstract

This study examines the environmental impacts of trade liberalization in Costa Rica. A CGE model is constructed which includes eight environmental indicators covering deforestation, pesticides, overfishing, hazardous wastes, inorganic wastes, organic wastes, greenhouse gases, and air pollution. Three trade liberalization scenarios are examined. Two sets of analyses are conducted for each scenario, one in which technologies do not change in response to trade liberalization and the other in which total factor productivity in each sector changes in response to changes in imports of machinery and equipment. To account for uncertainty regarding values of the model's parameters, a Monte Carlo experiment is conducted for each policy option. The impacts of trade liberalization on the environmental indicators are generally negative in sign but small or moderate in magnitude, both when technology is constant and when technology is allowed to vary.